Mrs. ROB and I are not looking to sell our home anytime soon, but I have become fascinated over the past few months about real estate and how other people determine the price of their home on the market. There are three things that I think are driving this interest in home prices. Part of my fascination has to do with our own refinance journey (a future post coming up shortly). In order for our refinance to go through we need to have the bank come back with a specific number. If it is doesn’t then we would have to wait to get the necessary 80% Loan to Value to refinance the home.
My fascination has also grown because when I take our dog Spooner for our daily walks in our neighborhood I am curious as to what homes are selling for, what they look like inside, and who our neighbors might be. Yesterday on a whim I went to an open house where the square footage was similar to ours, but that house was over $50,000 what we bought for just under 2 years ago. I was just curious to see how they could justify their pricing.
Finally, we live in, according a number of sites, the hottest housing market in the country. Because Boston is so expensive and Providence, RI is fairly affordable with great restaurants, universities, and amenities (we kind of like living here if you can’t tell) a lot of people will hopefully be buying homes in the area. Considering Providence has a commuter rail that goes directly into Boston that helps our cause. Obviously that pushes up home prices when you are in a hot housing market.
So these three items have me interested in the real estate that is selling near our homes. In pricing your home you would think that this decision would be somewhat straight forward. You would look at what other homes are selling at in the market and then determine a price based upon those comps. As it turns out it is not so straight forward. After doing some research I have found there are a few things to look for when pricing your home to sell or looking to buy.
Hire A Good Real Estate Agent
I think this is one of the best decisions that can be made. You need to hire a good real estate agent when you are buying and selling a home. We were lucky in that we had a pretty good real estate agent who represented the buyer and seller. Next time, however, I would do a lot more research in attempting to buy or sell a home. I would interview agents, find out what kind of track record they have with the neighborhood, how many homes have they sold, and what are some suggestions they would have for us. Just like anything else I would want to get to know them if they are representing them.
If you don’t know any good real estate agents then ask for suggestions. We met with one real estate agent on a recommendation from a friend. She was certainly a nice person, but we really didn’t feel a connection with her and didn’t feel like she would advocate for us.
Do Your Own Research
It seems to me that a lot of homeowners abdicate the pricing of their home to real estate agents or others. I think this is a mistake. You should be doing research in the area where you want to buy. You should look at what homes have sold and what homes are on the market for. Now each home is different, but the comps should give you a pretty good idea of what to sell or buy your home for.
Finding those comps is fairly easy. If you look on realtor.com, Trulia, Redfin, or Zillow, they will have listings of homes that were recently sold in the area. You can pull up those homes and see what they sold for. Again, your home might have air conditioning, more bedrooms, or whatever, but you can still get a pretty good idea. That is what I did when we were buying our home. I spent a few hours looking over comps and other homes in the area to determine how we would negotiate pricing.
One of my guilty pleasures is watching shows like House Hunters or Million Dollar Listing New York and I am always fascinated by the prices that people want for their homes, particularly when the comps don’t match that reality. For example, I walk Spooner by a couple of houses that have been on the market for the last three weeks. One house has about 1000 square feet and was originally priced at $245,000. That is over $245 a square foot. Another home two houses down (same real estate agent) is at $200 a square foot. The house I looked at his weekend was over $175 a square foot. Houses that have sold recently don’t even come close to the first two numbers, the third might be doable.
My point in bringing up these examples is that if you really want to sell your home be realistic. Do your homework. Everyone wants to get the best deal for a house, but be realistic. Your house is probably not worth as much as you think it is and it probably isn’t as cheap as the person buying thinks it should be.
Home Improvements and Pricing
This is kind of an offshoot on the be realistic segment, but I know a couple of friends of mine that have totally redone their house, went to resell it and they didn’t get as much as they thought they were going to when they put improvements in the house. Now my friends did all kinds of fancy stuff. They put in solar panels, the best insulation, sound systems throughout, a new electrical panel, etc. The problem is that these items don’t necessarily directly increase the value of your home. Typically, if you create another bedroom, renovate a bathroom, or a kitchen gets the most bang for your buck.
Mrs. ROB and I put in all kinds of new insulation and we are going to be getting a new electrical panel soon to handle the upsurge in electricity. Does that mean that our house should be valued at $5000 more which has been the cost of these repairs, not necessarily. Just because you improve things in a home doesn’t mean it will translate into higher prices.
When Mrs. ROB and I were looking at a home two years ago we put in an offer on a home that was totally gutted and redone. I mean this was nice and he did the work himself, but we felt his price was too high. So we negotiated and this gentlemen had put so much work in the home that he refused to come off a certain number. In fact, only $5000 separated our final offers. We were more than willing to meet him halfway. He refused. And we walked based upon principle. Instead we bought a house for $50,000 left. I later found out he sold the house for $5000 less than what we offered. It was a win for us, but not so much for him. You have to be realistic when considering home improvements and the impact on the home.
The Bottom Line: Selling and buying a home can be a stressful thing. If you are going to sell your home and buy another one make sure you hire a good real estate agent, do your own research with regards to homes in the area and be realistic about what your price should be and what you have done to the home. You could save yourself a lot of time and trouble. Those three houses I mentioned are still on the market. And I can almost bet that two of them will have to lower their prices quite a bit before someone will make an offer.